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TMI Blog2018 (1) TMI 1618X X X X Extracts X X X X X X X X Extracts X X X X ..... HIGH COURT] in view of the voluminous documentary evidence, only because those persons had not appeared before the AO would not negate the case of the Assessee. We have also made enquiry from the learned Sr. Departmental Representative, whether the investors or this company is a Shell company or in the list prepared by Ministry of Corporate Affairs, Govt. of India. The learned Sr. DR, stated that this information is not available with the department. We made enquiry from the learned Counsel for the assessee whether this company has been strike off from the Registrar Of Companies or not, the learned Counsel stated that it is very much on the register of Registrar Of Companies. In view of these facts, we reach to a conclusion that this is existing company and even the investors are existing. - Decided against revenue. - ITA No. 4742/Mum/2015 - - - Dated:- 31-1-2018 - SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM For the Revenue : H.N Singh, DR For the Assessee : Vijay Mehta Anuj Kisnadwala, ARs ORDER PER MAHAVIR SINGH, JM: This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-16, Mumbai, [in short CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Hare Krishna Securities Pvt. Ltd. 20900 2090000 22990000 25080000 3. Empower Indus Ltd 41700 4170000 45870000 50040000 4. Signora Finance Pvt. Ltd 1670G 1670000 18370000 20040000 5. Lilac Medicines Pvt Ltd / 20900 2090000 22990000 25080000- 6. Sonal Cosmetic (Exports) Ltd 20900 2090000 22990000 25080000 7. Raw Securities Pvt. Ltd 8400 840000 9240000 10080000 8. Prabhav Industries PvK Ltd. 41700 4170000 45870000 50040000 9. Sonal Sil Chem Ltd 1250Q 1250000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Para 4.6 as under: - 4.6 As such the assessee was required to produce the identity of the person who had applied for the shares giving the name, address and PA Number. But no such details have been tiled by the assessee Inspite of giving various opportunities. Further the assessee was required to give the genuineness of the transaction showing that the assessee has received the money from the person who have applied for shares giving the cheque No., Bank details, etc. Further in order to prove this creditworthiness, the assessee should have produced the Balance Sheet or Bank of Account of the person who have applied the shares to show that he had sufficient balance in his accounts to enable him to subscribe the share capital. However the assessee has not produced any of the above details. Needless to mention that, the assessee has allotted shares to these persons/entities and assessee itself could not produce its shareholders. 6. And finally, added the share capital amounting to ₹ 22,04,40,00/- to the returned income of the assessee under section 68 of the Act. Aggrieved, assessee preferred appeal before CIT(A). 7. The CIT(A), deleted the addition after consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed not be decided exclusively on the present position but the future potential also has to be looked into. ln the case of the appellant company the management estimated the share premium at the rate of ₹ 1100 on the basis of various plots and parcels of land in different villages of Taluka Khalapur. There was proposal to develop the project spread over those plots under one scheme/ Project. The company was planning to make necessary applications for conversion to non-agricultural use by making necessary payments for the conversion. Schedule E forming part of the balance sheet shows that under the head advances against plot ₹ 14,33,73,009 is stated. This schedule refers to note 5. Note 5 gives details of the advances paid for purchase of land and includes advances paid to farmers for which agreement have been entered and also advances paid to farmers for which agreements have been executed in the name of the company. These details were filed before the assessing officer during the course of assessment proceedings. Notes 6,7 and S annexed to and forming part of the accounts for the year ended 31 March 2010 are also relevant and the same are reproduced herein below: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Equity share capital of ₹ 46,08,91,000 with high reserves and surplus of ₹ 1,02,58,57,000/-. ii. Fixed Assets of ₹ 3,74,78,065/- including additions made in the current year of ₹ 3,73,84,398/- majorly in buildings, plant machinery and electrical instalments. iii. The company has huge cash and bank balance of ₹ 93,05,748/-.- iv. It has also paid right issue and bank balance of ₹ 4,14,159/- and penalty to Stock Exchange of ₹ 4,80,000 which proves that it s a running concern. 5.5. This proves the capacity to make investment in the appellant company and also issue shares at premium. The said company is holding shares till date of the appellant company. Thus there is no rotation of money 5.5.2 Also Addl. Director of Income Tax (Investigation), Baroda, has sent his report dated 46-2014 confirmed that the party namely M/s. Prabhav Industries Limited actually exists and its address has changed. It shows the shares as investment as shown by the appellant. Balance sheet for i.e. on 31-3-10 is filed before him and the same shows the same figures as stated herein above. From the bank statements filed by it investment on various dates h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade is bogus. 5.6.5 As regards Ahmedabad Investigating Wing's action u/s. 132 that Shri Devang Dinesh Chandra Master is only a entry providerthe said company has made bogus purchases and sales to other companies, which does not mean that it has made bogus investment too. 5.6.6 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at page 40 of PB. Therefore, statement of Shri Devang Dinesh Chandra Master, Director of Empower Industries India Limited is not called for. 5.6.7 The amount which has been paid by the said company never came back to the appellant company. The said company are holding till date the shares of the appellant company. 5.6.8 Hence addition made in the assessment is not correct. 5.7 As regards Harekrishna Securities Private Ltd, Mumbai (₹ 2,50,80,000/-), date of incorporation of the said company is 01-09-1994 as per PAN card. The financial statement of the said company reveal the following: i. Share application money of ₹ 4,70,00,000. ii. The company has huge investments of ₹ 10,01,19,700. iii. The bank balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... medabad (₹2,50,80,000/-), the said company has given 18th Annual Report in the year under consideration. This shows that it is an old company. The financial statement of the said company reveals the following. i. Equity share capital of ₹ 12,06,00,000 and securities premium of ₹ 12,06,00,000. ii. Gross Block of Fixed Assets of ₹ 3,21,21,1 62 iii. The company has huge investments of ₹ 11,07,19,768, 5.9.1 The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium. 5.9.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. 5.9.3 As regards no increase in investments for F.Y.200940 as compared to investments in F.Y. 2008-09 and Cash Flow Statement as on 31 March 2010 not showing any investments made during F.Y.2009-10, the appellant had filed confirmation on page 142 of PB where the above company has confirmed of having applied for the shares at premium of ₹ 1,100/- and has given details of payments made through RTGS from its Kotak Mahindra Bank. Further, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the companies of trading in commodities especially through commodity exchanges were explained. (Ans to Q 4) ii. Confirmed the transaction of subscribing preference share of the appellant company and submitted share application form. .(Ans to Q 7) iii. Details about business activities of appellant company were also provided. (Ans to Q 8) iv. The shares were subscribed for the purpose of investment and through common acquaintances. (Ans to Q 8) V. Investment registers, audited accounts, return of income and bank statements were provided for the FY 2009-10 of all four companies. (Ans to Q9,1O) vi. Source of funds for making investment in the appellant company were explained. It was explained that the company had surplus funds in form of share capital. The said funds are extended as loans to various parties. The investments have been made out of the share capital and the short- term loans taken from other parties or loan repayments received by these companies. .(Ans to Q 12) vii. It was confirmed that shares are still held with the all four companies and share certificates issued by the appellant company to all the four companies were submitted. Thus, from the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the investment made in the appellant company is after the date of search i.e. 25.08.2009. 5.11.5 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at PB page 193 and also in the staemeM recorded on oath of u/s. fl of Shri. Vimal Gala, director of SonalSilChem Limited, he has confirmed the transaction of investing in the preference shares of the appellant company. The observation made by the AO were before the above statement taken on oath. However now, there is no room for doubt. 5.11.6 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money. 5.11.7 Hence addition made in the assessment is not correct. 5.12 As regards Dynachem Pharmaceuticals (Exports) Limited, Ahmedabad (₹ 50,40,000/-),the said company has given 18th Annual Report in the year under consideration. This shows that it is a very old company. The financial statement of the said company reveal the following: i. Equity share capital of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.13 As regards Sonal International Limited, Ahemdabad (₹ 2,00,40,000/-), the said company has given 17th Annual Report in the year under consideration. This shows that the company is a very old company. The financial statement of the said company reveals the following: i. Equity share capital of ₹ 6,27,00,000. ii. Gross Block of Fixed assets of ₹ 2,92,33,813. iii. The company has huge investments of ₹ 3,13,62,987. 5.13.1 The above details prove that the company had capacity to make investment in the appellant's company. 5.13.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. 5.13.3 As regards Cash Flow Statement for the year ended 31st March 2010 showing that there is neither any new investment made nor any investment sold, Page 254 of PB shows that the company has confirmed that it has applied for preference shares at premium of ₹ 1,100/- and has paid through RTGS from its Kotak Mahindra Bank. 5.13.4 As regards the observation of the AO that during the course of search and seizure action u/s 132 of the Act in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was explained that the funds have been paid out of the share capital and short-term loans and advances of the company. He submitted the bank statements of all the 4 companies highlighting the payments made to the appellant. .(Ans to Q 12). It was again stated that the companies had surplus funds in the form of share capital. The said funds were extended as loans to various parties. The investments have been made out of the share capital and the short-term loans taken from other parties or loan repayment is received by these companies (.( Ans to Q 13) vii. Justification of investing in the shares issued with premium of appellant company was provided. It is stated that the appellant company was coming up with a township at Khalapur and looking at the prospective profits of the said project they have invested in the said company. He submitted a copy of the project report of the said project. .( Ans to Q 17) viii. It was confirmed that shares are still held with the all four companies and share certificates issued by the appellant company to all the four companies were submitted..( Ans to Q 18,19) Thus, from the above statement recorded oil and the documents provided by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because the said company was providing bogus entries to M/s. I Kumar Infraprojects Ltd, it does not prove that the said company has made bogus investment in the appellant company. h) No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is after the date of search i.e. 25.08.2009. i) The payment received by the appellant company from the above said company has been reflected in the bank account of the appellant company. j) The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money. In view of the above facts question of giving an enhancement notice does not arise and the AO is correct in the assessment order by not making addition on account of this company II. As regards Lilac Medicines Pvt. Limited, Mumbai (₹ 2,50,80,000/-), as per the AO the ratio for profit before tax to the total credit to P L is 0.98% for AY 2009-10 and 1.49% for AY 2010-11 and the earnings per share for AY 2010-11 is 0.28 whereas for AY 2009-10 it is 0.44. The turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t other five parties left the addresses given. The AO analysed each of the parties and their financials from the records of the company and also referred to additional DIT investigation Baroda, who confirmed that these parties have confirmed the transitions i.e. Prabhav Inds Ltd., Empower Indus India Ltd. Harekrishna securities Pvt. Ltd., Signora Finance Pvt. Ltd. Sonal Cosmetics (Exports) ltd., Raw Gold Securities Pvt. Ltd., Sonal Sil Chem Limited., Dynachem Pharmaceuticals (Exports) Ltd., Sonal International Ltd., Alken management and Financial Ltd. and Lilac Medicines Pvt. Ltd. All these parties have admitted the transactions and also filed financials of these companies showing the investment in shares of the assessee company. The CIT(A) after getting the remand report from the AO, deleted the addition. 7. We find that the AO proceeded to discredit the investors of the assessee, which is completely erroneous. The AO was looking for proof beyond doubt and proceeded on an element of suspicion that the amounts of investments are really those of the assessee, which have been ploughed back by the assessee. But the settle principle of law is that any amount of suspicion however, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bom), wherein Hon ble High Court had held as under : - (e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced for removal of doubts or that it is declaratory . Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case 10. We have also made enquiry from the learned Sr. Departmental Representative, whether the investors or this company is a Shell company or in the list prepared by Ministry of Corporate Affairs, Govt. of India. The learned Sr. DR, stated that this information is not available with the department. Further, we made enquiry from the learned Counsel for the assessee whether this company has been strike off from the Registrar Of Companies or not, the learned Counsel stated that it is very much on the register of Registrar Of Companies. In view of these facts, we reach to a conclusion that this is existing company and even the investors are existing. 11. In view of the above facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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